State lawmakers return to Colorado Capitol for special session to address massive budget gap

DENVER — State lawmakers returned to the Colorado Capitol on Thursday to begin a special session to address a massive budget shortfall.

Governor Jared Polis blames the budget deficit on the tax changes made in President Donald Trump's One Big Beautiful Act (H.R.1). According to the governor and fellow Colorado Democrats, Colorado is set to collect less revenue than expected when lawmakers approved the state budget in May.

Across the aisle, Colorado Republicans say the federal government’s spending bill isn’t to blame.

Lawmakers will also attempt to tackle other issues during the special session, including a proposal to provide financial support to Planned Parenthood, which was targeted by the OBBA.

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What caused Colorado’s budget shortfall?

Despite misinformation on social media, the state’s current budget shortfall was not caused by excessive spending on undocumented immigrants or the state’s spending over the past several years.

State Rep. Bob Marshall, D-Highlands Ranch, said he’s tired of hearing misinformed arguments about the budget deficit.

“Well, it's really irritating,” Marshall said. “I mean, the reason we're here is because we have a $1.2 billion hole blasted in the middle of our budget.”

While the federal government can spend more money than it collects, Colorado’s constitution requires state lawmakers to pass a balanced budget each year. Indeed, that’s what lawmakers did earlier this year.

But that wasn’t the end of the story.

Colorado is one of a handful of states with “rolling” conformity, meaning that it automatically adopts changes to the federal tax code. So, if Congress passes legislation that cuts or raises federal taxes, Colorado automatically mirrors it.

Budget analysts say this automatic mirroring has benefits, such as making filing taxes easier for Coloradans. It can also create problems.

Trump’s bill made a lot of changes to the federal tax code and cut taxes. Because of its automatic mirroring, Colorado adopted those changes. Many provisions from the OBBA will take effect in 2026 and 2027, but several took effect immediately, resulting in less revenue for the state to collect.

Colorado approved its state budget in May. State lawmakers approved the budget, anticipating no major changes to the federal tax code. But in July, Congress gave approval to the OBBA, and the president signed it into law on July 4.

“The impacts on Colorado are particularly immediate,” Polis said. “The impact on taxpayers depends on your tax situation. You may benefit; you may not. But there is a significant loss in revenue, largely from the corporate tax changes that are in this bill.”

Polis called a special session to address the sudden budget shortfall.

• Political reporter Brandon Richard recaps Day 1 of the special legislative session in the video player below

How much is the shortfall?

According to Mark Ferrandino, Colorado’s budget director, the OBBA created a $1.2 billion budget gap for the current budget.

Some of that revenue loss was absorbed by the state education fund and the affordable housing fund. Around $300 million that the state had in surplus, which would have been refunded to taxpayers, will now be used to help fill the gap.

That still leaves lawmakers with a budget gap estimated to be around $783 million.

How do lawmakers plan to fill the budget gap?

Democrats, who are in charge of both chambers of the legislature, have proposed a three-pronged approach: end corporate tax breaks, dip into the state’s rainy-day savings, and cut some spending.

House Speaker Julie McCluskie said on Tuesday that she anticipates closing the corporate tax loopholes would provide $300 to $400 million. She estimates lawmakers will need to take $200 to $300 million from the state’s reserves, which would leave about $300 million in cuts that would need to be made.

McCluskie said Democrats would make cuts “responsibly.” However, Democrats want the governor to make those cuts for them.

Democrats have introduced SB25B-001, which would establish procedures for the Joint Budget Committee (JBC) to hold hearings with the governor’s office when the state doesn’t have enough money to provide state services.

Under current law, the governor can end or pause functions of state agencies for up to three months if the state doesn’t have enough money for state services. The bill will give the legislature, through the JBC, more involvement in those decisions.

“To come in in the middle of August, and cut the hundreds of millions of dollars that need to be cut, that’s just not something that the budget committee is equipped to do,” said State Sen. Jeff Bridges, the chairman of the JBC.

Republicans call special session ‘premature’

While Polis and Democratic lawmakers say the special session is necessary, Republicans aren’t so sure about the timing.

“I think the special session is very premature,” said Colorado House Minority Leader Rose Pugliese. “I think that the impacts of the bill really should have gone through the Joint Budget Committee process, and then once the Joint Budget Committee can understand what the implications of the budget are, then we can come in for a special session or during a regular session to get this budget issue dealt with.”

Republicans said the special session fails to address the state’s structural budget challenges and believe Democrats plan to raise taxes.

“For years, Democrats at the Capitol have spent beyond their means and ignored Republican solutions. Now, they want taxpayers to bail them out,” Pugliese said. “Republicans will protect your right to vote on tax increases, defend your refunds, and not give Democrats a blank check. Our bills repeal hidden tax hikes, protect small retailers, and preserve Medicaid for the most vulnerable. These are real solutions for Colorado families.”

Republicans have introduced bills that they say would provide “common-sense solutions,” but the proposals are not expected to pass the Democratic majority.

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Lawmakers will address other issues

The OBBA made reproductive clinics like Planned Parenthood ineligible for federal reimbursements. Colorado Democrats have introduced a bill, SB25B-002, which would authorize state funding for those clinics until they become eligible for federal reimbursements again.

“We are irreplaceable,” said Jack Teter, the vice president of government affairs for Planned Parenthood. “And I'm very grateful that the legislature and the governor's office recognize that and that they're acting during special session to preserve access for our patients.”
 
Lawmakers will also consider SB25B-003, a bill to ask voters to provide more money for the SNAP food assistance program.

“Republicans in Congress made unprecedented cuts to SNAP in their federal budget, which slashed millions from nutrition programs that helped Coloradans feed their families,” said State Sen. Dafna Michaelson Jenet, D-Commerce City.

Lawmakers will also consider changes to Colorado’s artificial intelligence law.

The special session is expected to last into the first part of next week.

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